The Pulse

Just How Transformational Will India’s GST Be?

Three Indian MPs from different parties reflected on the challenges and opportunities inherent in India’s Goods and Services Tax.

Just How Transformational Will India’s GST Be?
Credit: CC0 image via Pixabay

Three members of India’s parliament recently visited Washington, D.C. and engaged in a conversation on various domestic and foreign issues in India. The dialogue took place at the Carnegie Endowment for International Peace (CEIP) at an event moderated by Milan Vaishnav on Tuesday, “The View from New Delhi: A Conversation With Indian MPs.” It featured Lok Sabha MP from Assam, Sushmita Dev of the Indian National Congress, Lok Sabha MP from Odisha, Baijayanta “Jay” Panda of the Biju Janata Dal (BJD), and Lok Sabha MP from Himachal Pradesh, Anurag Thakur of the ruling Bharatiya Janata Party (BJP).

The bulk of the dialogue focused on the Goods and Services Tax (GST) bill passed by India’s parliament in August. The GST bill was long awaited and seen as key for economic reform in India, as it would bring India’s various states closer today toward a common market. All three speakers praised the bill, though the praise from Dev, from the opposition Congress Party, was lukewarm. Dev argued that while her party agreed with the concept of one market, it had disagreements on the details.

Over the years, India’s byzantine economic structure was put into place mostly by the Congress Party. Thakur and Panda both supported the GST bill more strongly. It should be noted that Panda is from a regional state party not aligned with either the BJP or Congress. His extremely high praise of the GST bill — he said it was the biggest thing to happen since 1947 in India — is indicative of just how highly anticipated the bill was across India’s political spectrum. Panda argued that the GST was a tipping point, in which all the major players in India realized the benefits of economic modernization.

The discussion on the GST bill was tied to a discussion on whether a new model of cooperative federalism is emerging in India. Again, Thakur and Panda strongly agreed. Thakur pointed out that under the Modi government, more money is going back to the states, a process that would accelerate once the GST bill is implemented. Panda agreed, stating that India’s system was overcentralized and that different states have different needs, so a level of flexibility is required; he cited the different need for education budgets in Odisha and a highly literate state like Kerala. Again, I found Dev’s answer somewhat generic and lukewarm; in the spirit of the times, she agreed with the other two speakers without getting too much into the specifics, merely saying that each state in India ought to have a dream of its own.

There seemed to be a gap between Dev and the other two speakers when it came to India’s economic growth. Dev wanted to tie economic growth to job growth specifically while Panda and Thakur, while not disagreeing, argued that after lagging for so many years, even seemingly jobless growth was beneficial for India. For example, building more kilometers of roads a day, which the current government has done relative to previous ones, is an inherently good thing, since India needs to lay down a strong foundation.

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The conversation also touched upon a couple of themes, including the issue of tolerance in India and the American presidential election. There has been some concern that some elements of Indian society have become more intolerant, especially since the BJP came to power. Dev did not necessarily agree with this in the quantitative sense, but argued that qualitatively–since politics are about perception–the government has the responsibility to combat this view. Thakur blamed the media for creating a distorted perception, a position that Panda agreed with. While Panda praised the media for doing their job and calling to attention abuses, he also argued that the media often distorted issues, citing a series of attacks on churches in 2014, where it was later revealed that the majority of those attacks were regular burglaries and had no communal aspect.

In terms of larger trends, the conversation highlighted some interesting trends in Indian politics. First, was the continued irrelevance of the Congress Party and its inability to engage with new and timely ideas. It is only because of its infrastructure across India that it remains a viable national force. While the BJP obviously is a vibrant force across India, I believe that regional parties will continue to be an important and often beneficial force in Indian politics, rather than a vehicle of political fragmentation. Regional parties understand local problems and want their states to prosper. And while they are increasingly taking up the populist mantle that was originally a Congress trademark, this is done without being overly obstructionist; almost all supported the GST bill. As Panda pointed out, the states want economic reform because nobody in his state wants it to be cheaper to ship goods to Japan than to neighboring West Bengal.

Centralization’s future was another interesting aspect of the discussion. Most of the political spectrum agrees that decentralization is beneficial and that the idea of government 5-year plans being handed out from New Delhi is simply not a good idea. On the other hand, ironically, centralization can also be beneficial. The GST bill would replace a plethora of state tax laws, and so represents a level of federalization. It seems as though the wrong things are centralized while common-sense ideas for decentralization have long been ignored.

No matter how one looks at it, India is in the middle of major political and economic changes. It will continue to be a place to watch closely.